TIDMBPC
RNS Number : 4665H
Bahamas Petroleum Company PLC
25 March 2020
25 March 2020
Bahamas Petroleum Company plc
("Bahamas Petroleum" or the "Company")
Perseverance #1 Well Update
Bahamas Petroleum Company, the oil and gas exploration company
with significant prospective resources in licences in The
Commonwealth of The Bahamas, wishes to provide the following update
in relation to the timing for the drilling of Perseverance #1, its
first exploration well in The Bahamas.
Key Points
-- As a result of the massive, unprecedented and adverse impact
of the spread of the covid-19 virus, safe and responsible drilling
operations in the planned May / June 2020 timeframe can no longer
be assured; drilling operations are thus being rescheduled to
October 2020 onwards
-- The impact of the response to the spread of the Covid-19
virus, both globally and in The Bahamas, also constitutes a force
majeure event under the terms of the Company's licences; the
Company has notified the Government of The Bahamas of such, which
is expected to result in a corresponding extension to the current
term of the licences
-- Key elements of the Company's finance package have been
successfully rescheduled; the Company is in a strong cash position
and in the coming months will be seeking to redefine operational
plans and major contractor arrangements consistent with a revised
work programme timetable
-- Farm-in process continues; Company has begun considering
other opportunistic strategic alternatives arising as a result of
the current global crisis
Simon Potter, Chief Executive Officer of Bahamas Petroleum
Company, said:
"Our primary objective is safe operations, best delivered by the
ability to drill uninterrupted by external events for the period of
the drill plan. Given the ever-evolving adverse impact of the
response to the spread of the Covid-19 virus - which is changing
daily and is affecting everyone and all enterprises, around the
globe - it has become clear to us that if we continue to push
forward with drilling in the first half of 2020, safe and
responsible operations would be compromised. We have accordingly
notified the Government of The Bahamas that a force majeure event
has occurred, which is expected to result in an extension to the
current term of our licences, and we are rescheduling our drilling
plans accordingly, to after October 2020.
I know this will be disappointing for shareholders, as it is for
management and the Board alike, given all the progress we have thus
far made toward drilling of the Perseverance #1 well, but as a
prudent operator we need to assess the risks objectively and act
appropriately. Shareholders should be encouraged, however, that we
are in a strong position to resume drilling activities toward the
end of 2020, compared to where we were just a year ago. The Company
has cash reserves, and financial backers intent on flexibly
supporting the Company. We have a robust drill plan that has been
risk-assessed and reviewed by insurers and contractors alike, a
range of long-lead and critical path items have already been
purchased and will be warehoused ready for immediate redeployment,
and the rig market is changing rapidly such that there will likely
be a surfeit of capable rigs towards the end of this year in a
competitive price environment. We also have an approved
Environmental Authorisation from the Government of The Bahamas,
farm-in discussions remain on foot, and the current crisis is
presenting a number of interesting alternative opportunities for
us.
Moreover, the Company's prospect has not changed: the same rocks
will still be there at such time as safe and responsible operations
can resume, and shareholders can rest assured that the entire team
at the Company will continue working towards drilling with the same
commitment, passion and belief that has got us to this stage.
The spread of the Covid-19 virus represents a global threat to
our collective way of life, and we all have to face reality over
the coming months - which in the case of our Company means pausing
our drilling plans for a time, as hard as that may be. We hope that
all of our shareholders, stakeholders, employees and contractors
take care, and stay safe and well in this extremely difficult time
for all."
Timeline to Drilling
The Company's primary objective, as a prudent operator, is to
ensure the safe and responsible drilling of Perseverance #1, on
budget, and in fulfilment of the Company's licence obligation to
the Government of The Bahamas, which is an initial exploration well
in 2020.
Safe, responsible and cost-effective drilling can best be
delivered by ensuring continuous operations throughout the entire
period of the 45 - 60 day drill plan. For this to occur, the
Company, its major contractors, and all relevant staff and
personnel must be operationally ready, with all necessary equipment
available, all provisioning organised, and a logistical plan
completed such that all aspects of operations can be safely
executed uninterrupted throughout the duration of intended drilling
activities.
Given the rapidly unfolding, unprecedented and widespread
adverse impact occasioned by the global response to the spread of
the Covid-19 virus, the Company has concluded that safe and
responsible operations can no longer be assured during the first
half of 2020.
For example, national and regional shutdowns (which are being
expanded on an almost daily basis) are impacting the ability for
drilling rigs and other mission critical equipment to get properly
prepared and certified for drilling; and travel bans and border
closures (being revised and added to daily) are making it
difficult, and in some cases impossible, for key project personnel,
staff, crew and contractors to move freely to be where they are
needed, when they are needed. Moreover, as at 17 March 2020 The
Bahamas has declared a state of emergency, such that a curfew is
now in place, most international flights in and out of The Bahamas
have been suspended, and in the limited circumstances where inbound
flights are allowed, mandatory isolation on arrival is
required.
There is presently no certainty as to when these onerous
operating conditions and restrictions will change or cease - most
commentators cite anywhere from 30 days to up to 4 months - and all
of this is occurring at a time when preparation for drilling (in
the window of May / June 2020) would be entering into a critical
phase.
This is further compounded given the need to take into account
the timing of the traditional hurricane season in The Bahamas. This
is because prudent operation requires drilling operations to occur
outside of the peak-risk period of the Bahamian hurricane season
(being July - mid October). In other words, even if normal
operations were able to resume in the very near term (which appears
entirely unlikely), the minimum impact of the currently existent
circumstances would be to delay drilling of the Perseverance #1
well until after the 2020 hurricane season in The Bahamas.
The Board has thus concluded that if the Company was to continue
to seek to commence drilling in the first half of 2020, there would
be an unacceptable level of risk to the Company's ability to
operate continuously, responsibly, safely, and within currently
established guidelines, timelines and, as a consequence,
budgets.
By contrast, all present indications are that the Covid-19 virus
response will "peak" during the first half of 2020, and operations
for the Company (and indeed for almost all other businesses that
are all being likewise adversely affected) can resume
thereafter.
Accordingly, the Company has determined to postpone drilling
operations until mid-October 2020 onwards, being after the expected
peak in the Covid-19 response, and also after the peak risk period
for hurricanes in The Bahamas.
Force Majeure
The Company has notified the Government of The Bahamas that, as
a consequence of both the international and Bahamian response to
the spread of the Covid-19 virus, a force majeure event has
occurred (it being noted that the Company's licences and Bahamian
regulations specifically define epidemic to be a force majeure
event). As such, the Company is entitled to a corresponding
extension to the current exploration term of its licences,
equivalent to the duration of the force majeure event (up to a
maximum of 1 year).
The Company notes that the precise duration of the force majeure
event (and hence requisite extension) is presently unknown (it can
only be determined once the current force majeure event is over),
but at this stage the Company has notified the Government of The
Bahamas of the force majeure event in compliance with licence
terms.
The impact of the response to the Covid-19 virus on the Bahamian
economy and the people of The Bahamas will be extreme, given that
the Bahamian economy is heavily dependent on tourism. To this end,
the Company has committed to ensuring continuity of employment
through this crisis for all of its local Bahamian staff, and to
continue its previous support for a number of local Bahamian
organisations and charities.
Impact on Well Cost and Operational Readiness
The Company has previously provided guidance as to the estimated
cost of drilling operations for the Perseverance #1 well, in the
range of $25 million to $30 million, and with potential
contingencies identified that, depending on real-time drilling
results, could add up to an extra $5 million of cost. The Company
does not presently anticipate this cost estimate will change as a
result of the rescheduled commencement of operations.
In the coming months, the Company will be systematically
re-evaluating all major contract and supply arrangements, so as to
ensure the Company is a position to commence drilling operations in
accordance with the revised timeline.
In particular, as a result of the global Covid-19 crisis, a
large number of international drilling programmes have been
cancelled or postponed, and almost all major rig contractors are
presently revisiting their forward work programmes. This is
expected to have knock-on effects to (potentially greater) rig
availability and (potentially lower) rig pricing in the revised
drilling window. The Company is already revisiting discussions with
a range of contractors for securing a suitable drilling rig for the
revised drilling window.
In the course of preparing to drill in the April - June
timeframe the Company has made commitments to purchase a range of
long-lead or critical path items comprising wellheads, bits and
casing, and associated running gear. These items have been moved
from the warehouses where they were being readied for shipment to
the drill ship to more secure and protected locations for storage,
but equally ready for immediate redeployment.
Many manhours have been spent by the drilling team in compiling
the procedures, policies, project plans and associated
documentation necessary to undertake drilling, as well as
completion of a rig contract. The vast majority of this
documentation will remain the same, current and germane for the
resumption of activities, regardless of when that may be. The
Houston-based drilling team has been stood down pending resumption
of normal activities later in 2020, but can be readily reassembled
in good time to enable future drilling.
Impact on Funding Strategy
Background
Since 2019, the Company has been pursuing a coordinated strategy
toward securing the funding required for the drilling of an initial
exploration well - Perseverance #1 - in The Bahamas, targeting
recoverable prospective resources of 0.7 - 1.4 billion barrels of
oil.
The elements of this funding strategy, as enacted to-date,
are:
1. Approval by the shareholders of the Company, in September
2019, of an enlarged share placement capacity of up to 1.8 billion
new ordinary shares, so as to provide the Company with maximum
flexibility in the process of securing funding for the planned
exploration well;
2. An open offer to the then existing shareholders, in October
2019, which raised gross proceeds of approximately US$4.3 million
through the issue of 166.4 million new ordinary shares at a price
of 2p each;
3. A successful institutional placing, in November 2019, to
raise additional gross proceeds of approximately US$7.1 million
through the issue of 275.6 million new ordinary shares at a price
of 2p each;
4. A Conditional Convertible Note Subscription Agreement,
entered into by the Company on 10 October 2019 (and as more
particularly described in the Company's announcement of that date
and subsequently in the Company's Open Offer Circular as sent to
all shareholders in October 2019 - the "Conditional Convertible
Notes"), whereby, subject to satisfaction of various conditions
precedent prior to 15 April 2020, the Company expects to raise
additional gross proceeds of GBP10.25 million ( c.US$13.3 million)
(and in certain circumstances this date can be further extended to
15 May 2020). Pursuant to an amendment to that agreement as
announced on 9 March 2020, prior to 31 March 2020 the Company has
the right, should it elect to do so, to scale back the Conditional
Convertible Notes by up to 50%, at no cost or penalty to the
Company. If not scaled back, fully drawn, and assuming all interest
were accrued and the principal and interest fully converted into
shares, a total of approximately 590 million new ordinary shares
would be issued;
5. An GBP8 million (approximately $10.3 million) facility for a
zero-coupon, second ranking convertible bond (the "Facility"),
entered into on 20 February 2020 ( and as more particularly
described in the Company's announcement of that date) whereby the
Company drew down an initial tranche of the Facility of GBP2.43
million (net of face value discount), and has access on an
unconditional basis to four additional tranches of GBP1.19 million
(net of face value discount) each in April, May, June and July
2020, available for draw-down through the course of drilling should
the Company elect. I f fully draw and fully converted, based on the
Company's current share price range, the Facility would require the
Company to issue a total of approximately 250 - 350 million new
ordinary shares; and
6. An expansion of the Facility entered into on 17 May 2020,
whereby the initial tranche of the Facility was increased by a
further GBP2 million and fully drawn down (such that the Company
saw immediate cash inflow of GBP1.8 million, approximately $2.2
million). In addition, the existing tranches available, should the
Company elect, for each of May, June and July 2020, were each
increased by GBP2 million . I f fully draw and fully converted, and
based on the Company's current share price range, this expanded
component of the Facility would require the Company to issue a
total of a further approximately 250 - 350 million new ordinary
shares.
In addition, the Company has sponsored the creation of a
Bahamian domiciled mutual fund, with the primary objective of
creating a vehicle through which qualified Bahamian investors could
invest in the Company, and thereby share in the ownership of the
Company's nationally significant project. Whilst not a core element
of the Company's funding strategy, initial subscriptions to this
fund have raised gross proceeds in Bahamian dollars equivalent to
US$0.9 million through the issue of 35.3 million new ordinary
shares at a price of 2p each. The Company has also agreed to make
available to the fund in March 2020 up to a further 40 million
shares at a price of 3.35p each, which if taken up by the fund
would raise a further $1.4 million. However, the Company does not
presently anticipate that any of this allocation will be taken up
given the current condition of the capital markets.
In aggregate, therefore, the above elements (including the
Conditional Convertible Notes, if not scaled back and fully drawn,
and the expanded Facility, if fully drawn) would see total funding
availability of approximately $45 million, and issuance of
approximately 1.6 to 1.8 billion new shares.
Impact on Conditional Convertible Notes
As noted, under the terms of the Conditional Convertible Note
Subscription Agreement (as amended) a number of conditions
precedent must be satisfied prior to draw down by 15 April 2020
(and in certain circumstances, that date may be extended to 15 May
2020).
Given the occurrence of a force majeure event(s) (ie: the global
coronavirus pandemic and its various impacts) and the Company's
decision to accordingly defer drilling operations to later in 2020,
a number of the conditions precedent will not be able to be
fulfilled by that date. These include:
1. Formal placement of an insurance policy for drilling operations;
2. Entry into a definitive contract for provision of a drilling rig; and
3. The Company entering into a long-form master services agreement for integrated well services.
Given this , the parties to the Conditional Convertible Note
Agreement have agreed a further variation of the Conditional
Convertible Note Subscription Agreement, such that the date for
satisfaction or waiver of all conditions precedent and election to
subscribe to the Convertible Notes is extended to no later than 15
October 2020. Further, to the extent that the Subscriber elects to
subscribe on an unconditional basis for at least GBP1.5 million of
Convertible Notes prior to 15 October 2020, the date for the
satisfaction or waiver of the conditions precedent to draw-down of
the balance of the Convertible Notes will be extended to 15
November 2020 (with accrual of interest not commencing until actual
remittance of funds by the Subscriber to the Company, and therefore
with no cost to the Company until that time).
Impact on Facility
As noted, under the terms of the Facility (as amended), the
Company has access to additional funding in four committed tranches
of convertible notes in each of April, May, June and July 2020.
However, given the convertible structure of the Facility, the price
at which shares may ultimately be issued should the Company draw on
these future instalments is likely to be considerably less than the
Company has previously considered appropriate, assuming the current
share price of the Company were to continue to prevail at that
time. Equally, to the extent that the Company's share price trades
at a level below 2p for five consecutive days, the provider of the
Facility has the option, should it so desire, to withdraw from the
Facility or not meet any or all future draw-down requests.
As such, the Company has entered into discussion with the
Bahamian family office that has provided the Facility, which has
maintained its full support for the Company and the project . To
this end the parties have agreed to keep the Facility on foot, and
to replace the current draw down dates of April, may, June and July
2020 with draw down dates in November and December 2020 and January
and February 2021 - i.e., with revised draw down dates better
matched to the revised drilling schedule and funding needs. The
parties have also agreed to further review the Facility terms and
draw down schedule once the overall market impact of the
coronavirus response is better understood). The Company will advise
shareholders on any developments in relation to this matter as
appropriate.
Impact on Farm-In Process
In the coming months the Company will continue to assess options
for a farm-out or similar transaction, and is pleased that,
notwithstanding the global crisis occasioned by the Covid-19 virus
and the recent material decline in global oil prices, a number of
interested parties, including oil and gas majors and supermajors,
have indicated that they would wish for discussions to continue,
albeit on a timeline matched to the global operating situation and
the Company's revised drilling plans.
In addition, in recent weeks, the global crisis occasioned by
the Covid-19 virus has seen a number of potentially value-creating
alternative strategic options presented to the Company, which the
Company is seeking to evaluate over the coming months. The Company
will advise shareholders on this matter as appropriate.
Cash position
The Company has ceased all purchasing / contracting activity
focussed on drilling activities in the first half of 2020, and will
be moving to minimise cash outflows over the coming months as the
full impact of the Covid-19 response plays out. To-date,
considerable effort has been made to minimise up-front commitment
of capital to anything other than long-lead items essential to the
Company's operation whenever it occurs, and which items, as noted
above, are being kept ready for immediate deployment as and when
required (and thus also considerably reducing critical path in the
future once operational activity resumes).
The Company presently has $13 million cash at bank, with no debt
other than GBP3.26 million in convertible loan notes issued under
the Facility which have not yet been converted and which are
repayable in 3 years if not converted during that term. Excluding
costs related to drilling in the first half of 2020 (which as noted
will now cease), the Company has an operating overhead of $2 - $2.5
million per annum, and is thus well positioned to be able to
maintain basic operations prior to recommencing work toward
drilling.
Conclusion
The worldwide and local Bahamian responses to the spread of the
novel coronavirus are unprecedented, highly fluid and currently
unpredictable force majeure events. The Company's decision to
accordingly reschedule drilling operations represents what the
Board considers to be a prudent, measured and timely response to
what are extremely onerous and unprecedented circumstances.
The Company will advise shareholders of any material
developments as and when appropriate.
For further information, please contact:
Bahamas Petroleum Company plc Tel: +44 (0) 1624
Simon Potter, Chief Executive Officer 647 882
Strand Hanson Limited - Nomad Tel: +44 (0) 20
Rory Murphy / James Spinney / Jack Botros 7409 3494
Shore Capital Stockbrokers Limited Tel: +44 (0) 207
Jerry Keen / Toby Gibbs / James Thomas 408 4090
CAMARCO Tel: +44 (0) 20
Billy Clegg / James Crothers 3757 4983
www.bpcplc.com
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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